Net Neutrality

Kudos to Berec, the European agency of national regulators. Despite strong opposition and public campaign brought against by a large part of big European and US telcos, the agency resisted to pressures and substantially confirmed the well-expected Guidelines on net neutrality, a first draft of which had been already disclosed last June and was subject to very extensive public consultation. The Guidelines adopted on August 30, 2016 specify important practical details as well as the correct interpretation of the principles laid down by Regulation 2120/2015 in the matter of net neutrality. One should not forget that such regulation had been approved after long debates and fierce fight in Brussels and Strasbourg.

The most important part of the Guidelines concerns the ability of ISPs to carry out so-called zero-rating and network management practices. Remarkably, Berec has not prohibited such commercial behaviors but, instead, decided to lay down a detailed list of conditions and circumstances that national regulators should now assess in order to adopt whatever decision in this matter (whether prohibition or authorization). The most remarkable condition indicated by Berec is that both zero-rating and network management practices should not be driven by commercial considerations, in other words they should not discriminate services so as to favor the ISP’s own Internet services (or these of a commercial partner) to the detriment of competitors. Instead, such practices should be “agnostic” and applicable to a generic categories of services, not to a specific service. To make a practical example: an ISP could use such practices to favor in general music-streaming, or VOIP, or all messaging platforms, while it could not discriminate in favor of just a specific Internet provider, e.g. the sole Spotify for music streaming; the sole Skype for VOIP; the sole WhatsApp for messaging; and so on.

One would wonder why the big telco industry is so annoyed (“big” comprises mobile and fixed dominant operators, with the exclusion then of MVNOs and alternative fixed operators). In fact, Berec i) did not prohibit anything, it is just saying that national regulators will have to assess and take a decision, on the basis of the criteria indicated in the Guidelines; ii) expressed favor vis-à-vis zero-rating and network management practices, while preferring them when provided in an “agnostic” way. So, what?

To understand the irritation of the big telco industry, one should think about the following.

First, the big telcos industry has been enormously lobbying in the past in order to have free hands in the matter of net neutrality and, to tell the truth, at beginning they were succesfull because the first draft of Regulation 2120/2015 (the one proposed by Commissioner Kroes in September 2013) provided such freedom in substantial terms. Thus, big telcos hoped to use that regulation to have large discretion in discriminating Internet services and traffic so as to supersede any national legislation contravening such power (such as the net neutrality laws in the Netherlands and in Slovenia for instance). However, after fierce fight in the Parliament and Council such discretional power was strongly limited, the provisions relating to zero-rating and network management practices were drafted in a more vague form and a clear reference to non-discrimination was made.

Despite of the above, the telco industry still hoped that Berec would issue Guidelines interpreting the Regulation in a way that zero-rating and network management practices would be simply allowed, also discriminating amongst commercial services, without further assessment by anyone. To the contrary, Berec laid down just criteria and referred the competence to decide on specific cases to the national regulators, which in the future will exercise a formidable power in this matter. This scenario is indigestible to big telcos which would prefer to avoid to discuss their commercial practices with national regulators (because in that case they also have to discuss with consumers associations).

Secondly, criteria and conditions laid down by Berec will have an important impact upon the heart of big telcos’ commercial strategy. Berec indicates that “non-agnostic” zero-rating and network management practices will likely to be forbidden by national regulators. This is a disastrous news for big telcos because discriminating Internet services (in order to favor own or partnered services) is what this telco industry has in mind since all the net neutrality battle and debate started (in 2005 in the EU).

Fact is, since margins of connectivity have been declining in the years because of technology and competition developments (especially with regard to the mobile sector), big telcos have been thinking to recover money by bundling connectivity with services by way of discriminatory practices, so as to receive additional fees at least from content and services providers (accused to use their networks for free: but this is another story). This claim has been normally presented as “innovation”, however it is difficult to understand how zero-rating or network management practices favoring a specific Internet service, to the detriment of others, could be seen as “innovative”. In other words, there is nothing of innovative in giving access to Spotify, WhatsApp or Facebook for free (i.e., discounting their traffic from data caps) or in clean uncongested way (which should be normal, by the way). Innovation means providing new services, rather than providing the same services in a more complex, expensive and byzantine way.

Berec, the European regulatory agency, has issued its draft guidelines on the implementation of net neutrality rules (namely the rules enacted by arts. 1-5 of Regulation 2015/2120). The move of Berec was well-expected because the new European net neutrality rules leave wide margins of appreciation and a clarification for a consistent enforcement by national regulators is needed. BECEC is accepting feedback from interested parties on the draft guidelines until 18 July 2016. The guidelines will be finalized and published in September 2016.

The most debated subject to be clarified by Berec was the one of zero-rating, i.e. the commercial practice whereby ISPs apply a price of zero to the data traffic associated with a particular application or category of applications (and the data does not count towards any data cap in place on the Internet subscription). Big telecom operators have defended this practice on the assumption that it could boost innovation (although the innovation would merely limited to a price scheme, not to new services). Consumers and civil rights associations are normally against, because zero-rating would, as a result, influence the user’s choice of Internet services on the mere ground of the cost of Internet connectivity. More recently, operators and associations gathered in the Netcompetition alliance have underlined the anticompetitive effects of zero-rating practices for alternative telcos and innovative Internet service providers, in addition to consumers.

It must ne noted that the European rules on net neutrality are quite ambiguous. While they never mention explicitly zero-rating, they guarantee (article 3.2. of the Regulation) a general commercial freedom for ISP and users to negotiate data caps agreements they want, provided, however, that the “free choice” by users is not substantially undermined (art. 3.1.).

Recital 7 of the Regulation is a bit more clear:

“National regulatory and other competent authorities should be empowered to intervene against agreements or commercial practices which, by reason of their scale, lead to situations where end-users’ choice is materially reduced in practice. To this end, the assessment of agreements and commercial practices should, inter alia, take into account the respective market positions of those providers of internet access services, and of the providers of content, applications and services, that are involved. National regulatory and other competent authorities should be required, as part of their monitoring and enforcement function, to intervene when agreements or commercial practices would result in the undermining of the essence of the end-users’ rights”.

Taking into account of the above, Berec has not banned zero-rating practice but have left to national regulators the task to carry on a case by case assessment. However, the criteria suggested and the circumstances to verify suggest that national regulators may have string poker and wide discretion to ban zero-rating behaviors in practice.

In particular, Berec is suggesting that when a zero-rating practice is aimed at privileging a single service or applications, at the detriment of other competing services/apps, this behavior should be considered unlawful. More precisely, Berec stressed that (§39):

“the zero price applied to the data traffic of the zero-rated music application (and the fact that the data traffic of the zero-rated music application does not count towards any data cap in place on the IAS) creates an economic incentive to use that music application instead of competing ones. The effects of such a practice applied to a specific application are more likely to “undermine the essence of the end-users’ rights” or lead to circumstances where “end-users’ choice is materially reduced in practice” (Recital 7) than when it is applied to an entire category of applications”.

Truly speaking, if national regulators will literally follow this rule (as I hope, by the way) the zero-rating business is dead. The sole incentive of zero-rating practices, for dominant ISPs and OTT, is discriminating competing services. There is no commercial rationale for an agnostic application, i.e., like Berec says in theory: “as long as the data volume and speed characteristics are applied in an application-agnostic way (applying equally to all applications), end-users’ rights are likely to be unaffected by these characteristics and conditions”.

As well all know, on Tuesday October 27 the European Parliament, meeting in plenary session, will likely approve the new net neutrality provisions which are part of the Single Telecom Market (“STM”) regulation. Civil society and industry are however protesting because the reform, despite some commendable principles, will de facto legitimate zero-rating practices, i.e. a commercial behaviors allowing telcos to discriminate Internet services and so affecting the free choice of users. Even Tim Berners-Lee launched an alert about the dangers of the proposed reform, while an accurate critical analysis have been dome by Barbara Van Schewick.

Because of the above, a Save-the-Internet campaign has been launched in order to support amendments to block that part of the reform. It is to be expected that some groups in the EP will support the amendments, especially the Greens, GUE, as well as some MEPs of the EFDD and the ENF groups. Several Dutch MEPs should also support the amendments (the Netherlands, notably, was the sole country together Slovenia to prohibit zero-rating practices). It seems that approximately half of the ALDE group is likely support them. The “Save-the-internet” campaign asking MEPs to support the amendments seems to be particularly strong in Germany, Belgium and Austria. However, I understood that the EPP, ECR and a huge majority of the S&D group will vote against and support the net neutrality provision including the zero-rating issue.

Because of the noise created by this debate, the press office of European Parliament issued a misleading communication pretending that it is not the Parliament, rather the national regulators, who will take a decision on zero-rating:

“Zero rating is a commercial practice of some internet access providers, especially mobile operators, to not measure the data volume of particular applications or services when calculating their customers’ data usage. This means that these websites or services are effectively provided for free to customers, to the detriment of all other websites or services. Parliament intends to allow national regulators, overseeing the implementation of the draft regulation, to decide whether zero rating will be applied in their country or not.”

This is completely false and misleading! So far national regulators had various instruments to block zero-rating practices, including antitrust, fair trade and consumers protection rules. In Slovenia and Netherlands they even had a net neutrality legislation ad hoc. By contrast, after the approval of the STM regulation, that power of national regulators will be materially weakened because of the ambiguous wording of article 3 of the European regulation vis-à-vis zero-rating practices:

Users shall have the right to access and distribute information and content, use and provide applications and services, and use terminal equipment of their choice, irrespective of the enduser’s or provider’s location or the location, origin or destination of the information, content, application or service, via their internet access service.This paragraph is without prejudice to Union law, or national law that complies with Union law, related to the lawfulness of the content, applications or services.

Agreements between providers of internet access services and end users on commercial and technical conditions and the characteristics of internet access services such as price, data volumes or speed, and any commercial practices conducted by providers of internet access services, shall not limit the exercise of the rights of end users laid down in paragraph 1“.

The above provisions must be read together with recital 7 (a recital, not a binding provision!) of the same regulation:

“In order to exercise their rights to access and distribute information and content and to use and provide applications and services of their choice, endusers should be free to agree with providers of internet access services on tariffs for specific data volumes and speeds of the internet access service. Such agreements, as well as any commercial practices of providers of internet access services, should not limit the exercise of those rights and thus circumvent provisions of this Regulation safeguarding open internet access.

National regulatory and other competent authorities should be empowered to intervene against agreements or commercial practices which, by reason of their scale, lead to situations where endusers’ choice is materially reduced in practice. To this end, the assessment of agreements and commercial practices should inter alia take into account the respective market positions of those providers of internet access services, and of the providers of content, applications and services, that are involved. National regulatory and other competent authorities should be required, as part of their monitoring and enforcement function, to intervene when agreements or commercial practices would result in the undermining of the essence of the end users’ rights”.

In other words, while it is clear that agreements about data and speed are legitimate and may be used for zero-rating practices and other discriminations based on the price of Internet connectivity, it is absolutely unclear if and to what extent national regulators can intervene in order to prohibit such discriminations. The Dutsch and Slovenian legislations were quite clear to this respect, since they prohibit ISPs, sic et simpliciter, to differentiate the price of the Internet connectivity on the basis of the Internet services running over it. However, such legislations will need to be repealed (as it was declared by respective governments when voting against the STM).

Today the Council formally approved the Roaming and Net Neutrality provisions of the TSM (Telecom Single Market) Regulation under the new name “Regulation laying down measures concerning open internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the Union”.

The text agreed by the Council needs now to be ratified by the European Parliament: on 12 October the ITRE (Industry) Committee will vote recommending the European parliament plenary (scheduled for 27-28 October) to approve the Council position. Unless extraordinary circumstances occur, the new regulation should enter into force in late November 2015.

It is remarkable that the Council’s position at first reading was adopted without discussion at a meeting of the Competitiveness Council. However, there were rumours that Netherlands and Slovenia, the only EU countries which already have a national NN legislation in force, may be voting against. At the end, they were not able to oppose the deal, instead they made statements expressing concerns for the impact of the new rules on their NN national legislations. Netherlandas believes that they will be forced to repeal their net-neutrality rules banning zero-rating practices, i.e. price discrimination.

Zero-rating practices are in fact allowed by the new European regulation. As a consequence of that, an ISP could charge customers with different connectivity prices depending on the Internet services (website, music, video) which are accessed to, thus materially influencing the free choice of the users. The new European regulation empowers the national authority to surveil about anticompetitive practices, however such rules are too vague to be a deterrent, and this is the reason why the Dutch are so worried.

The position of the European Parliament has been ambiguous on this point. The assembly has been doing a big battle about net neutrality but, in my opinion, they understood too late the zero-rating dilemma, because at beginning it was considered too technical (despite the fact that various people, including the undersigned, have been flagging the danger since the beginning). The Parliament became fully aware of the problem after the first reading in April 2014, but it was too late then. This delay in fully understanding such an important issue may have a serious weight for the future of the European Internet industry.

However, some members of the European assembly could still rise the issue at the plenary session, asking this problem to be amended accordingly. They would need a strong support for that. It already happened in 2009, when the European Parliament refused to ratify the reform of the 2009 Electronic Framework Package because it was missing a clear provision about Internet as a fundamental right. In that case, as it would be now, the Council was very angry with the Parliament which was accused not to be able to respect inter-institutional deals.

It is till too early to assess how European telcos will react to this unexpected freedom to discriminate Internet prices. In markets where competition is vigorous, they will be probably hesitate, because users may migrate to more friendly ISPs. But in markets tending towards narrow oligopolies (mobile and ultrabroadband markets in particular), the problem may rise soon.

Little by little, I am getting information about the reform of the net neutrality which today was agreed in principle by Council and European Parliament. It is still a political agreements, while the European Commission has been required to write down the detailed articles – therefore things may still change a little.

Let’s start with the best points:

Open Internet is safeguarded with a very wide and fundamental wording: “End-users shall have the right to access and distribute information and content, use and provide applications and services and use terminal equipment of their choice, irrespective of the end-user’s or provider’s location or the location, origin or destination of the service, information or content, via their internet access service”. There is no explicit reference to the term “net neutrality” that the European Parliament liked a lot, however this is more symbolic/political issue rather than a substantial one.

The neutrality principle is however then elaborated in a more sophisticated way: “Providers of internet access services shall treat all traffic equally, when providing internet access services, without discrimination, restriction or interference, and irrespective of the sender and receiver, the content accessed or distributed, the applications or services used or provided, or the terminal equipment used”. This should compensate the lack of the “net neutrality” wording, I believe.

Network management practices are clearly regulated: they must be reasonable, meaning that they must be transparent, non-discriminatory, proportionate, and shall not be based on commercial considerations, i.e, they should not be anticompetitive. In other words, an ISP cannot discriminate the traffic just to unbalance a competing online service (like in the case of traditional voice and sms, which may be jeopardized by VOIP and chats). In addition, ISPs shall not, in general, block, slow down, alter, restrict, interfere with, degrade or discriminate between specific content, applications or services, apart from some exceptions provided by law.

Then, we go to the grey area:

Specialized services are allowed, but on the conditions that the network capacity is sufficient to provide them in addition to any internet access services (best effort). Remarkably, in US specialized services are prohibited in principle: there they are intended as a prioritization performed for discriminatory or anticompetitive reasons. The fact that the European rule is lighter than the US one, is likely due to the fact that in the EU there is more competition in the fixed access, thanks to the wholesale regulation allowing the users to choose a plurality of fixed ISPs (while in US there is a quasi-monopoly in the access).

In any case, specialized services cannot be usable or offered as a replacement for ordinary internet access services, and shall not be to the detriment of the availability or general quality of internet access services for end-users. This means that dominant ISPs may not use specialized services to affect the nature of the Internet, since they will be obliged to first offer unrestricted best effort Internet, and then managed services. This rules should, in principle, avoid the emergence of a 2-tiered Internet, since an affordable best effort Internet must be guaranteed in nay case. However, how to apply this rule in practice may cause some controversies, since the nature of ordinary best effort Internet may vary depending on the deployment of the networks and related technology, country by country. In the mobile sector it will also depend on a variety of circumstances (spectrum availability, saturation cells ecc). Thus, it will be up to the national regulators to find a solution case by case, with the possibility to refer to the Court of Justice of the European Union to render an interpretative ruling. Berec could also be request to intervene to adopt some guidelines. To sum up, I foresee plenty of litigations.

And finally, the dark side of the net neutrality reform:

Zero-rating practices are allowed. Such clauses allow an ISP to indirectly discriminate competing or non agreed services simply by differently charging the price of the Internet connectivity used to provide them. in the reform there is a general clause whereby contractual agreements about volumes, price and speed should not affect the freedom of users to get the services they want, but this is a too vague wording to say that zero-rating practices may be challenged when they are anticompetitive. This is the most controversial part of the reform. I would expect the European Parliament to protest against.

Finally, one could wonder whether current national legislation prohibiting zero-rating practices, such the ones in the Netherlands and in Slovenia, will be considered consistent with the new regulation. There is a clear risk that they may be challenged in front of national courts for being inconsistent with EU law.

The Council of the EU, which is currently lead by the Latvian presidency, finally stroke an agreement on the draft proposal about roaming and net-neutrality. A mandate has been given to the Latvians to start negotiations with the European Parliament and to find a final deal over a reform that, at beginning – when proposed by Commissioner Kroes in 2013 as the “Connected Continent” proposal – was much more ambitious.

Although there is a great optimism in Brussel, closing the deal will be less easy than expected. And consumers should not be too excited.

The net neutrality proposal

Unlike the recent the new position of the US administration, the EU proposal does not prohibit specialized services. This is probably due to the fact that, due the competition in the European BB market, the Council believes that nobody (an incumbent telco) will be able to abuse with specialized services. In addition, national regulators (such as Ofcom in UK, AGCOM in Italy ecc) will have to monitor in concrete cases whether the emergence of specialized services may effectively impair the availability of ordinary Internet (best effort) in the market. In other words, whether or not this proposal will protect or affect net neutrality, it will mostly depend on the competitive conditions of each national market and the attitude/willingness of the local regulator. This means that Berec and Commission may be required to intervene again.

The EU proposal does not solve drastically the zero rating issue. This matter was debated in the Council but, while there was a majority of Member States opposing to prohibit zero-rating, a number of countries, especially the Netherlands and Slovenia, pretended such practices to be addressed somehow. The reason for that is that only in these countries there are NN national legislations in force, and such rules prohibit price-discrimination. Recently, some Dutch and Slovenian operators have been fined for zero-rating practices. A compromise was found, at a end, with a generic wording:

2. Providers of internet access services and end-users may agree on commercial and technical conditions and characteristics of internet access services, such as price, volume and speed. Such agreements, and any commercial practices conducted by providers of internet access services, shall not limit the exercise of the right of end-users set out in paragraph 1 (NB: par. 1 refer to the right/freedom of end-users to surf freely in the Internet without coercion).

In other words, also for zero-rating practices the attitude/willingness of the national regulators to intervene will play a major role. The Council draft does not set a clear prohibition, however it enact some powers to intervene.

For the rest, the Council text does not contain surprises.

The roaming proposal

The reform of the roaming is very weak and bit misleading. Starting from June 2016 European citizens will be entitled to an amount of voice/Internet traffic abroad without roaming surcharges (the so-called “basic roaming allowance”: “BRA”): the extent of this BRA will be a matter of negotiations with the EP, however the Latvians already proposed very low thresholds (the BRA should be granted for just 5 days at year, for instance). The traffic exceeding the basic allowance will be subject to roaming surcharges, as always. This BRA mechanism seems addressing European citizen going abroad once a year, it doe snot reflect the fact that many people go abroad frequently for personal and business reasons.

The Council did not show intention to review the anticompetitive mechanism allowing big European mobile operators to impose the roaming surcharges. In other words, there has been a discussion about reviewing the level of wholesale roaming charges (i.e. the price that a mobile operator must pay to provide roaming services to its customers abroad), however nothing has been really achieved (the Commission should present a study by 2018: campa cavallo!). As a result, the biggest mobile operators will simply recover from domestic services the profits lost in the roaming, and the retail mobile price will tend to increase overall. Competing operators, such as small MNOs and MVNO, will be prevented to compete because of the high level of wholesale access prices.

In other words, the European non-traveling citizens will simply subsidize the traveling ones.

The Trilogue negotiations

The Latvians have now to negotiate with the European Parliament, which has already shown some disappointment for the deal closed by the Member States. The negotiation will probably look like a bazar negotiation. The low compromise closed by the Council will serve to avoid to grant too much to the European parliament, whose position in April was much more aggressive.

Depending of the outcome of the negotiation, the procedure may last until the end of the year. Being the codecision procedure applicable, the European Parliament will need a strong majority to block the proposal of the Council (within 3 months). In case this happens, and the Parliament succede in tabling further amendments, the Council has to take a decision (further 3 months). In case of disagreement, a new phase (conciliation, 6 weeks) will start.

The FCC, the US regulator for telecoms and Internet, will soon adopt a fundamental decision in the matter of telecom and Internet regulation: as anticipated by various sources, US broadband access will be soon classified as a telecommunication service (while it is currently classified as an information service) with a twofold consequence:

– FCC will be empowered to impose net neutrality rules to US broadband ISP, and intends to do so: fact is, FCC intends to prohibit blocking, throttling and paid prioritization of online services;

– FCC will be empowered to impose access remedies to broadband ISP such as pricing control, ULL and bitstream, in other words to open their network to alternative operators like it happens now in Europe (NB: chairman Wheeler has specified that this power will no be enforced for the time being).

It is clear that the FCC is playing with the American ISPs the stick and carrot game, where the stick consists in the new NN regulation, while the carrot is the guarantee not to apply access regulation to broadband access. US IPS are scared about the possibility to apply access regulation to their networks and have loudly claimed that they could stop fibers investments if FCC does so.

While the FCC decision is destined to provoke an intense debate in the US, it is interesting to see whether it could influence similar debates in the EU, or vice versa.

Net neutrality

The EU is getting closer and closer to define a NN regulation. The Council is currently discussing a text which, after long months of debates, should be finalized by February 2015 so as to be submitted to the European Parliament and European Commission for the final negotiation and approval. In a previous post I remarked that the Council draft was too much telco-oriented and would have probably faced opposition or reserves by the European Parliament as well as by some directorates of the European Commission. Whatever the Council will finally agree, it is certain that the new US position will affect the balance of the European negotiations. The European Parliament will surely attack the paid prioritization proposed by the Council, on the basis that this practice is destined to be prohibited in US. Whatever the compromise will be, the Council will have to offer in return a more robust guarantee for best effort Internet. The Parliament will also feel stronger in advocating some symbolic amendments, such as an explicit reference to net neutrality and openness of the Internet. To sum up, the new FCC position on NN will surely help the European Parliament to defend its citizens-friendly approach.

Access regulation and competition

As stated above, the new classification of broadband in the US would theoretically permit an application of economic regulation to American ISPs, such as pricing control, ULL access and so on, although this possibility has been loudly excluded for the time being. It is therefore uncertain how this approach could impact on European policy, where access regulation is imposed in practice and not only in theory. The European Commission will start to revise the European framework in 2016 and there are strong pressures by historical incumbents (such as Orange, Telefonica and Deutsche Telekom) to lift regulation in order to boost investments (although the link between regulation and investments is controversial and challenged by many). In this respect, a paramount role will be played by the comparison of European and US data/figures relating to BB performances such as investments, speed, coverage, price, quality, consumer satisfaction and so on. In the past big US telcos such as Verizon and AT&T have loudly claimed that the US broadband market should be more successful than the Europea one, at least in terms of profits and network/fibers investments. Nevertheless, more recent data have radically challenged this assumption: various voices has shown that US consumers pay BB more expensive than in the EU, and the quality is not better. Also the debate about network investments has become more controversial, since it has been shown that with the Bush’s deregulation in the 2000 the percentage of revenue dedicated by US ISPs to investments has decreased. Only the profitability data resist for the time being: US ISP make more profit than European ones.

In light of the above, if the comparison of US/EU data will show that EU is performing better than US, despite the burden of internal fragmentation, it is possible that the EU access regulation approach will be endorsed by the US authorities, rather than vice-versa.